STRENGTHS

Potential for economic diversification with the opening of free trade zones

WEAKNESSES

Highly dependent on oil and China

Lack of infrastructure; insufficient progress in poverty reduction

Unsupportive business environment and weak governance

Lack of transparency on debt levels; uncertainty about interest payments

Risk assessment

Recovery strengthens thanks to the oil sector

After two years of recession, the Congolese economy returned to growth in 2018. Higher oil prices, coupled with an increase in production, supported a rebound in oil GDP. Growth in the non-oil sector, meanwhile, remained weak after being hit hard by the public finance crisis that followed the 2014/15 oil shock. The financing difficulties encountered by state-owned companies and arrears owing to Chinese companies in particular have caused several projects to be shelved. Despite a favourable oil market environment in 2019, fiscal consolidation efforts are expected to put a dampener on investment and consumption. Non-oil growth is likely to remain moderate, but this should be offset by an increase in oil GDP. Oil and gas production is set to increase in 2019, driven by the ramp-up of the Nene Marine (operated by Eni, an Italian oil and gas multinational company) and Moho (managed by French group Total) offshore fields, making the Republic of the Congo the third largest oil producer in sub-Saharan Africa. As the government prepares to launch a new call for tenders for deep-sea exploration licences in 2019, the improved security situation in the Pool region and the conclusion of an agreement with the IMF in 2019 should encourage foreign investors to return, even though the business environment remains challenging. Inflation is expected to be relatively stable in 2019, staying below the 3% target set by the Bank of Central African States.

Despite improvement in public accounts, debt remains unsustainable

The rise in oil prices led to a marked improvement in public finances in 2018, allowing the government to post a budget surplus. The surplus is expected to be maintained in 2019, despite the increased public spending provided for by the Finance Act. Even so, the country's financial situation remains critical. Between 2014 and 2016, Congo – which had embarked on a major infrastructure investment programme – maintained a high level of public spending, despite the sharp drop in its revenues. The subsequent accumulation of deficits led to a significant increase in the debt ratio. After a temporary default on Eurobonds in July 2017, in September of the same year the credit rating agency Standard & Poor’s revealed the existence of hidden debts linked to significant arrears owed to the Swiss trading companies Glencore and Trafigura. After the IMF included these debts in its estimates, Congo’s adjusted debt ratio jumped from 77% to 110%. The Congolese government is also involved in a dispute with Commisimpex, a construction company that is claiming USD 1.1 billion (16% of GDP) for unpaid infrastructure work. So far, the Paris Court of Appeal has ruled against seizure of the bank accounts of Congo’s diplomatic representation in France, but has upheld the seizure in favour of the complainant of claims due by French companies operating in the country. Despite the hidden debt scandal, China, which remains Congo's largest creditor (40% of the debt), continues to support the country in its negotiations with the IMF. In 2017, the Congolese government asked the IMF for three-year assistance, but the fund made its support conditional on public debt restructuring and a prior agreement with private creditors. A year of negotiations was necessary to reach a technical agreement, which will also involve an additional €135 million in aid from France.

Increased oil revenues, which represent 75% of exports, have generated a current account surplus that is expected to continue in 2019. However, the country remains vulnerable to a downturn in the oil market.

Tensions ease in the Pool region

The peace agreement signed between Pastor Ntumi’s Ninja Nsiloulou militiamen and the Congolese government in December 2017 defused the escalation of violence in the Pool region south of Brazzaville. The rebels had taken up arms in April 2016 to challenge the re-election of President Denis Sassou Nguesso. Clashes between armed militias and Congolese forces led to the closure of the railway link between Brazzaville and Pointe Noire in November 2016, disrupting part of the country's economy. Although the peace agreement appears to have been respected and the disarmament of militias continues, the situation remains precarious, with 138,000 people living in difficult humanitarian conditions. Despite the challenge from the Pool region, President Sassou Nguesso, who has been in power since 1997, emerged stronger from the 2016 presidential and July 2017 legislative elections. His Congolese Labour Party continues to hold a majority in the National Assembly, while the opposition is still fragmented, despite negotiations to unite in the run-up to the 2021 elections. The financial crisis, which has resulted in significant delays in paying civil servant wages, continues to fuel a very tense social climate.